November 18, 2014
A front page Washington Post article touted the health of the U.S. economy, noting its 3.0 percent annual growth rate. While there are reasons for questioning whether even this growth rate will be sustained (October retail sales were weak, as was manufacturing output in both September and October), 3.0 percent growth is not especially strong given how far the economy is below its potential.
According to the Congressional Budget Office, the economy is still nearly 4.0 percent below potential GDP. With potential GDP growing at roughly a 2.2 percent annual rate, it would take us until 2019 to return to potential GDP if the growth rate remains at 3.0 percent. This would make it nearly 12 years since the beginning of the downturn, a longer period of under-utilization than even during the Great Depression.
It is also worth noting that Japan has not been quite the economic basket case implied in this piece. Its employment to population (EPOP) ratio increased by 2.2 percentage points since 2012. By comparison, the EPOP in the United States increased by just 1.1 percentage point over the same period.
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